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Duffy v. Charles Schwab & Co.

June 30, 2000


The opinion of the court was delivered by: Cooper, District Judge

May 4, 2000 opinion amended June 30, 2000.



This matter comes before the Court on a motion for partial summary judgment by defendant Charles Schwab & Co., Inc. ("Schwab") pursuant to Federal Rule of Civil Procedure 56 seeking dismissal of the third and fifth claims for relief of plaintiffs Howard R. Duffy, III and James P. Duffy (collectively "Duffy"), which allege statutory and common law unfair competition and trademark infringement, respectively. Duffy's trademark infringement claim must fail because Duffy's limited use of the mark "MUTUAL FUND REPORT CARD" did not constitute prior use in commerce sufficient to establish rights in the mark and did not establish secondary meaning in the marketplace as a matter of law. However, Duffy's unfair competition claim under New Jersey law survives summary judgment because Duffy has set forth a genuine issue of material fact regarding whether Schwab misappropriated his "confidential and proprietary" information.


In approximately 1994, Duffy sought to form a strategic partnership with the American Association of Retired Persons ("AARP"), Morningstar (a leading supplier of mutual fund data), and Jane Bryant Quinn (a well-known financial writer) to offer an exclusive financial product called the Retirement Report Card ("RRC") to AARP's members. (Certif. of David Henry Dolkas, Esq. dated 2-24-00 ("Dolkas Certif.") Ex. 1: Dep. of Howard and James Duffy ("Duffy Dep.") at 23, 51.) The RRC would depict asset allocation and risk and itemize the fees and performance of a particular mutual fund. (Duffy Dep. at 42.) AARP stated that it would not consider Duffy's proposal because Duffy had not provided proof of his financial integrity and his ability to fund such an enterprise. (Dolkas Certif. Ex. 2.) Jane Bryant Quinn also rejected Duffy's proposal because she did not want to be featured in a business she did not control and she had no interest in controlling Duffy's business. (Dolkas Certif. Ex. 3.)

Following AARP's initial rejection, Duffy contacted start-up business divisions within two large accounting firms, Ernst & Young and, later, Arthur Anderson about securing initial funding for his company. (Duffy Dep. at 51-52.) Duffy was not successful in obtaining such funding. (Duffy Dep. at 217-21). In January 1997, after several attempts by Duffy to consummate a relationship with AARP, Duffy was told by AARP that it had no interest in an exclusive arrangement with Duffy. (Id. at 199-200.) Thereafter, Duffy abandoned his efforts to establish a relationship with AARP. (Id.)

On or about February 28, 1997, Howard Duffy called Schwab and spoke to Emma Leybin ("Leybin"), the administrative assistant to John Philip Coghlin, seeking to license financial products called the Mutual Fund Profile and the Mutual Fund Report Card to Schwab. (Decl. of Howard R. Duffy dated 2-7-00 ("Duffy Decl.") ¶ 3.) Leybin suggested that Duffy prepare a formal presentation and submit it for consideration by David S. Pottruck ("Pottruck"), the President of Schwab. (Id. ¶ 3.) Pursuant to this request, Duffy prepared a detailed business plan and a research report. (Id. ¶ 4.)

In June 1997, Duffy sent a proposal (the "Proposal"), along with the business plan, research report and other materials, all marked "Proprietary and Confidential," to Pottruck. (Dolkas Certif. Ex. 4; Duffy Decl. Ex. A.) In the Proposal, Duffy proposed a licensing arrangement by which Schwab would obtain licensing rights to the Mutual Fund Profile and the Mutual Fund Report Card. (Duffy Decl. ¶ 2 & Ex. A; Dolkas Certif. Ex. 4.) These products would provide concise summaries of mutual funds in a user-friendly format, enabling investors to objectively evaluate the performance of one or more mutual funds and compare such funds to others in the same peer group. (Duffy Decl. ¶ 2 & Ex. A; Dolkas Certif. Ex. 4.)

On July 11, 1997, Howard Duffy called Pottruck's office to follow up on Schwab's interest in the Proposal. (Duffy Decl. ¶ 6.) Pottruck's secretary confirmed receipt of the Proposal and informed Duffy that it had been forwarded to Tim McCarthy ("McCarthy") of Schwab for further consideration. (Id.) Duffy followed up by calling McCarthy's office. (Id.) McCarthy's assistant, Gillian Peoples ("Peoples"), told Duffy that the Proposal had been lost and asked Duffy to resubmit the information to her. (Id.). Duffy resubmitted the Proposal to Peoples on July 14, 1997. (Id.)

On August 20, 1997, Duffy returned a call he received from Michelle Swenson ("Swenson"), Senior Vice President of Investment Products and Mutual Fund Research. (Id. ¶ 7.) Swenson told Duffy that Schwab had decided not to use Duffy's submissions because it planned to develop its own paper-based product. (Id.) Swenson then stated that Schwab could use assistance in developing an on-line version of Schwab's paper-based product. (Id.)

In response to Swenson's suggestion, Duffy adapted the Proposal for on-line versions of Duffy's products and submitted the materials to Swenson on September 10, 1997. (Id. ¶ 8 & Ex. B.) Duffy spoke to Swenson again on November 11, 1997, at which time Swenson told Duffy that Schwab was no longer interested in on-line versions of the Mutual Fund Report Card and Mutual Fund Profile. (Id.)

On September 23, 1997, Schwab filed three applications for Federal Trademark Registration of the mark CHARLES SCHWAB MUTUAL FUND REPORT CARD. (Decl. of Robert J. Scheffel, Esq. dated 2-7-00 ("Scheffel Decl.") Ex. C.) Schwab began marketing the CHARLES SCHWAB MUTUAL FUND REPORT CARD on November 5, 1997. (Scheffel Decl. Ex. D: Dep. of Jeremy Ball ("Ball Dep.") at 57.)

In late 1997 and early 1998, Duffy pitched the Mutual Fund Report Card and Mutual Fund Profile to two brokerage firms, E*Trade and Waterhouse Securities. (Duffy Dep. at 148-53.) Neither firm was interested in licensing Duffy's products. (Id. at 150, 162.) Duffy has not sent the Proposal to any other brokerage firms. (Id. at 162-63.)

In September 1998, Duffy applied for a trademark registration for the mark MUTUAL FUND REPORT CARD. (Dolkas Certif. Ex. 6.) The Patent and Trademark Office denied Duffy's application stating that the words contained in the mark were "merely descriptive" and Duffy failed to demonstrate that the marks were used in commerce. (Id. Ex. 7.)

Duffy has not sold any product or service using the MUTUAL FUND REPORT CARD or MUTUAL FUND PROFILE marks to the public. (Dolkas Certif. Ex. 5.) In addition, Duffy has not derived any revenue from the sale or licensing of any product or service with the MUTUAL FUND REPORT CARD or MUTUAL FUND PROFILE marks. (Id.) Aside from Duffy's delivery of proposals to AARP, Schwab, E*Trade, and Waterhouse Securities, Duffy did not advertise its product to potential customers or licensees. (Duffy Dep. at 227-32.) In ...

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